Ch. 16: 16-26 - Comprehensive Question Evaluation of Internal Controls – Raw Materials and Supplies Inventory
Ch. 16: 16-29 - Comprehensive Question Computer-Assisted Substantive Tests for Inventory
(Evaluation of internal controls—raw materials and supplies inventory) The Jameson
Company produces a variety of chemical products for use by plastics manufacturers. The
plant operates on two shifts, five days per week, with maintenance work performed on the
third shift and on Saturdays as required. An audit conducted by the staff of the new corporate internal audit department has recently been completed, and the comments on inventory control were not favorable. Audit comments were ...view middle of the document...
The storeroom is also open during the third shift for the maintenance crews to get parts as needed. Purchase requisitions are prepared by the storeroom clerk, and physical inventory is taken on a cycle count basis. Rush orders are frequent.
a. Identify the weaknesses in Jameson Company’s internal control procedures used for (1)
ingredients inventory and (2) maintenance material and supplies inventory.
b. Recommend improvements that should be instituted for each of these areas.
Ingrediant’s inventory weaknesses:
At the end of the day, tallies are given to the inventory control department.
An employee in the batching department gets the raw material ingredients.
Purchasing reqs are done by the inventory control department
Weekly reports of production and standard formulas to calculate ingredient use is done by the inventory control department.
Maintenance material and supplies inventory weaknesses:
Store room left unlocked with no one in the room to monitor. It is also left open on third shift.
The correct way of doing requisitions are not always followed.
The store room clerk does the requisitions.
Cycle count basis is used for physical inventory.
* b. Ingredients Inventory recommended improvements:
* The inventory control department should do the recording when they receive the raw material ingredients.
* Purchase reqs should be done by the purchasing department not by the inventory control department.
* The actual amount of raw material ingredients should be used for production.
* Maintenance Material and Supplies Inventory recommended improvements:
* A storeroom req should be filled out before supplies are taken.
* The storeroom should be locked when the clerk is out and should not be opened unless there is a clerk there on third shift.
* Purchase reqs should be done by the purchasing department
* Physical inventory should not be done on a cycle count basis
16-29 (Computer-assisted substantive tests for inventory) An auditor is conducting an audit of the financial statements of a wholesale cosmetics distributor with an...